The Constitution of India
Article 270
Taxes levied and distributed between the Union and the States
(1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in articles 268 and 269, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2).
(2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3).
(3) In this article, “prescribed” means, —
(i) until a Finance Commission has been constituted, prescribed by the President by order, and
(ii) after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission.
Why this exists
India's Constitution gives the Union government power to levy major taxes (like income tax and central excise) but expects states to carry out most welfare and development work, which costs money. Article 270 bridges this imbalance by creating a shared 'divisible pool' of central taxes that must be distributed to states. Originally it covered only specific taxes like income tax; the 80th Amendment (2000), following the Tenth Finance Commission's advice, expanded it to nearly all Union taxes to simplify and stabilize the sharing arrangement, reducing disputes over which individual taxes were shareable.
How courts read it
Courts have generally treated the design and quantum of tax devolution under Article 270 as a matter of fiscal policy guided by the Finance Commission's expert recommendations, showing judicial restraint in second-guessing the President's orders made on that basis. There is no single landmark case reinterpreting this Article's core meaning, since its operation is largely procedural and administrative rather than adjudicative.
Common misconceptions
- Myth: States get to keep all the taxes collected within their borders.
Fact: Most major taxes are collected centrally by the Union government and then redistributed to states according to a formula, not simply returned to where they were collected. - Myth: The President can decide the tax-sharing formula however he likes.
Fact: Once a Finance Commission exists, the President must consider its recommendations before issuing the sharing order — it isn't a purely discretionary decision.